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EUROPE - Norway's Government Pension Fund Global is moving to protect itself from the impact of a possible Greek exit from the euro-zone by shrinking its counterparty risk to European banks - among other measures.

A spokesman for Norges Bank Investment Management (NBIM), which manages the NOK3trn (€388bn) fund, told IPE there was a contingency plan for the fund in the event of Greece leaving the single currency, but declined to go into detail on it.

NBIM spokesman Øystein Sjølie said: "We are trying to reduce the counterparty risk, with European banks. We are also shifting toward covered bonds and away from senior debt and hybrids, within bank debt."

The fund has slimmed its holdings of euro-denominated government bonds from certain issuers, he said.

"We have reduced holdings from Italy, quite heavily, and from Spain and Portugal from the second quarter to during the third quarter.

"We have also reduced our lending of securities in euros. In all the PIIGS countries, we are underweight - our investment is much less than in was."

On 30 September, the fund held NOK43.8bn in Italian government bonds, which is around NOK35bn less than the reference index indicates.

Last week, NBIM chief executive Yngve Slyngstad told a Norwegian online news service the fund would be careful about getting involved in the European Financial Stability Facility (EFSF), the special vehicle set up last year to combat the European sovereign debt crisis.

Slyngstad told E24 the question was now whether the EFSF would assume a new form, and whether in fact far more than the original lending capacity of €440bn would be required.

He said the complexity of the EFSF as an investment spoke against it for the Norwegian Government Pension Fund Global.

"We have a fixed income management strategy that tries increasingly to simplify things, and not be involved in multiple and complex instruments," Slyngstad said. "Seen in this way, the EFSF is not a natural investment for the fund."

The fund was involved in the EFSF's first issuance, investing €100m, but it did not participate in either of the two subsequence rounds.

Altogether the fund has raised €13bn, and the Norwegian fund has a share of around 0.6% of that.

But Slyngstad did not rule out further involvement in the EU crisis fund.

"For now, we will watch and await developments," he said. ""We will see when new issuance happens, and, when there is something more concrete on the table, whether we want to participate."